Letters To S&C by Technical Analysis, Inc.
SWING TRADING WITH THREE INDICATORS
I read Donald Pendergast’s
article on swing trading
(“Swing Trading With
Three Indicators”) and
found it interesting.
I would like to try using the strategy
because this generally matches my approach
to investing. My question is,
which program did he use to format
the strategy, as it seems to be a fairly
By the way, the thinkorswim code
(provided in the Traders’ Tips section of
the same issue) that I entered does not
show the high–low plots on the chart.
Is there a need to see them? It seems to
me the buy/sell triggers are indicated
by the arrows.
My second question pertains to price.
In the code, the closing prices are used
to trigger a transaction. What about
using the last price instead of the closing
price? Using the last price would seem
to be better on days where the price
range is substantial; this, however, may
present some other questions such as the
aggregation period of the bars and so on.
Thanks in advance.
Author Donald Pendergast replies:
Thanks for the kind comments. I used
TradeStation 9.1 to develop the system.
Some EasyLanguage code for TradeStation
was provided in the Traders’ Tips
section of that same issue (and also found
at the Stocks & Commodities website
at www.traders.com in the Traders’ Tips
section) to help implement the system.
Regarding the code provided in that
issue’s Traders’ Tips section, I did
notice that some of the Traders’ Tips
contributors provided code that uses
the current bar’s five-period SMA high/
low as the entry/exit triggers instead of
the previous bar’s closing value for the
To address your second question,
you can use the last or current price,
but you will have more whipsaws if the
trend doesn’t follow through; only testing
can prove which method is better.
However, that is a bit more risky than
using the previous bar’s closing value
for the SMA trigger.
Remember that you are the key
ingredient in this approach, since you still
need to verify with your own eyes that
a stock is capable of making relatively
smooth, tradable swings. Try to use
five to 10 years of historical data to
verify this before going ahead with any
testing. Some stocks have a consistent
history of tradable swings and others do
not; you will likely find that taking the
time to visually verify whether it does
may dramatically improve the overall